Credit Advice

Making very good credit scores better

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Topics addressed on February 6, 2008:

Making very good credit scores better

Dear Experian,

I have an 805 Experian score. I know that's a good score; however, I am a competitive person and would like a higher score. I have the financial means to do whatever is necessary. For example, I could pay off my mortgage, but I don't because I think it helps your score to have one. I pay my credit cards off monthly, but your systems show a balance, so should I send a $10,000 or $20,000 advance payment each month to the credit card companies so there will never be a "balance," just activity? Would that help? I really don't need credit, but find it challenging to raise my score.

- PSZ

Dear PSZ,

The first thing to come to grips with is that credit scoring isn’t a contest. What you describe is like being in a boxing match against yourself. What’s the point in that?

Your credit scores are not being compared to anyone else’s credit scores. Every lender sets its own threshold for credit risk, which is represented by a specific credit score that the lender chooses.

You don’t get a two slot toaster if your score is 20 points above the threshold but a bagel-capable toaster if your score is 100 points above the threshold. Once you are above that threshold, you will get the credit you want at the best terms the lender offers. It doesn’t matter if you are 30 points above that threshold score or 200 points above it.

Simply having credit means there is some risk, however small, that you won’t repay as agreed. Because of that small risk it is very difficult, if not impossible, to get a perfect credit score.

Having said all that, I have to admit that I am a competitive person, too, so I understand your desire to excel. For most people, my advice is to reduce their total balances as compared to their credit limits by paying down their revolving debt. Your total balances compared to your total credit limits is referred to as “utilization,” and is represented by your balance-to-limit ratio.

But, I get the strong impression that you don’t revolve, or carry balances from month to month. You simply use your cards heavily each month and pay them in full. The result, however, is that the amount you charge each month appears as your balance owing, and scoring models will count that toward your utilization.

So, very likely the only thing you can do to improve your very high score is to pay down your balances in advance as you suggested so that only a small balance is owed at the end of each payment cycle. But, there may be other issues that aren’t evident from the little information you provide in your question.

Credit scores are very specific to the individual. It is possible for two people to have the same credit scores, but for very different reasons. The only way to know what you need to do to maximize your credit score is to identify the specific items from your personal credit history that are most affecting your personal credit score. If you have purchased your credit score report, you already have those factors.

If you learned your score from a lender and don’t know your factors, you should purchase a credit report and score directly from Experian. That will give you detailed explanations of specific areas that most influenced the score  both positively and negatively.

You can get a credit score report when you order your free report at www.annualcredit report.com. There is an additional fee for the credit score report. Or, you can get a credit score report by going directly to www.experian.com.

Please note that the scoring model used is the VantageScore, which probably has a different scale from your previous score. Be sure you don’t try to compare the numbers. Because the scales likely are different, the numbers may be quite different, although they likely will mean the same thing. Rather than matching numbers, compare where you fall in the range of risk the scores represent.

If you are really serious about tracking the changes to your credit score, you can subscribe to a service like Experian’s Triple Advantage. The scoring model used there is the Experian National Plus score, which has a score range similar to the one you have been using.

Triple Advantage provides not only credit monitoring for security, but also monthly credit score analysis, credit score trending and a credit score illustrator. The illustrator lets you experiment with changes to your credit history to see what impact those changes would have on your credit score.

From a credit score perspective, the most valuable thing Triple Advantage or a credit score report gives you is a description of the things from your credit history that are having the most negative impact on your credit score.

Those risk factors will give you insight into whether you need to pay off your mortgage, reduce your credit card balances, or take some other action. By addressing the issues over time, most people can improve their credit scores.

Be aware, though, that with scores like yours, there is very little room for improvement, so making those changes may result in very little change in your credit scores.

The higher your credit score is the harder it becomes to improve it simply because there is very little room for it to get better. The nearer you are to perfection, the harder it becomes to get closer to it.

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